Insights

2018: a question of governance in sport

The last 12 months have seen a continuation of the explosive growth and commercialisation of the sports sector. As sport and business go increasingly hand-in-hand, controversies over governance and accountability of those running sports organisations are increasing. As such, 2018 is likely to see a marked focus on governance in sport.

Recently, sports governing bodies have begun to analyse their governance structures with a view to modernising them. As the market in which they operate changes, so too does the realisation that often the structures that are in place are not fit for purpose. Furthermore, privately held sports organisations are often run without input from the multitude of stakeholders that may hold an interest.

Regulatory, commercial and public pressures are changing the landscape and leading to reform. This article looks at some of the drivers of change and the likely impact in 2018.

Pressure from sponsors

As sport becomes increasingly commercialised, the sponsors investing their money and reputation in the sector are becoming more demanding of the organisations they partner with. Sponsors demand greater transparency prior to entering into arrangements and may exercise termination rights in event of high profile governance failures.

Recourse to the law

Three recent cases highlight how legal action has been taken in an attempt to remedy purported governance deficiencies in sports organisations:

In November 2017, a minority shareholder in Blackpool Football Club was successful in bringing an unfair prejudice action and obtaining a court order that required the majority shareholder to buy him out. The case related to the majority shareholder ignoring decision-making structures and declaring dividends that did not benefit the club.

Swansea footballer Wilfried Bony is engaged in an ongoing legal dispute with two former agents who used to represent him. Bony is alleging that undisclosed commission was paid to the agents. Swansea (who Bony re-joined in August 2017) were originally part of the action, but the claim against Swansea was settled. The case highlights the increasing pressure on clubs in relation to payments made to agents. If Bony is successful in court, further actions of this kind may follow in 2018.

Cyclist Jess Varnish is involved in an on-going legal battle with British Cycling and UK Sport relating to her treatment whilst on the elite performance program. An independent review, published in June of last year, reported that good governance was lacking in the sport. 2018 is likely to see other sports governing bodies assess their own governance structures in light of this, and other, reports on the topic. However 2018 will likely see further controversy and legal cases in this area.

Code for Sports Governance

In October 2016, UK Sport and Sport England published the “Code for Sports Governance”, which creates binding governance requirements for all sports organisations from elite to grass roots, including performance programs for Olympic sports, that want to receive UK Sport or Sport England funding. For bodies receiving funding over multiple years and in excess of £1m, the requirements included the following (non-exhaustive):

Maximum periods of tenure for board directors;

25% of board members needing to be independent;

To have non-executive directors; and

To target and take appropriate action to encourage a minimum of 30% of each gender on boards.

During 2017 many organisations took steps to amend constitutions and processes to become ‘code compliant’ ahead of the soft deadline of October 2017. This process was often fraught and involved curtailing the historic power of membership councils. Table Tennis England saw its funding briefly suspended in July when its members rejected the necessary reform package (a decision which was subsequently reversed). 2018 will see the further implementation of the reforms, with many board members being required to step down due to tenure limits expiring and new independent, non-executive director positions being filled.

Internal standards

Many sports organisations recognise the reputational and commercial risks where governance concerns arise and are proactively reviewing procedures.

For example, the Football Association recently ended its sponsorship arrangement with Ladbrokes due to the perceived conflict of interest with the FA’s role as the enforcer of Rules prohibiting footballers from gambling. Additionally, in December 2017 World Rugby announced it will undertake a review of its process for awarding World Cup tournaments, after its members rejected the recommendation of an independent evaluation in a secret ballot when awarding the 2023 tournament to France.

The increasing frequency of affected persons challenging decisions of sports bodies (typically through internal appeals procedures) is continuing to influence standards in governance. Requirements of transparency and accountability are becoming embedded in updated policies and procedures.

Summary

The numerous regulatory and commercial drivers will ensure that governance continues to be a major focus for the sports sector in the 12 months ahead.

For more information, please contact Richard Davies on +44 (0)20 7427 6732 or at Richard.Davies@crsblaw.com.

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